It seems a day doesn’t go by that we hear of another region going cap in hand to Madrid requesting financial assistance, the latest being Andalusia who is blaming a lack of liquidity and debts for it plight.
Tensions have already hit record highs between the various autonomous regions in Spain with many blaming the national government for their debts and blame what they call unfair austerity for their woes. Andalusia has demanded an immediate €1 billion (£791 million) bailout.
Andalusia will become the fourth major region to ask for financial aid after Valencia, Murcia and Catalonia all requested bailouts. Valencia has asked for €4.5billion worth of Euros in bailout money, a figure far larger than when it made its initial plea. Catalonia has asked for €5 billion whilst Murcia is hoping for €300million.
Catalonia’s request for €5 billion is almost one-third of the money the Spanish government has set aside to assist all 17 of the autonomous regions. Despite this the Catalan government has proven to be hostile to Madrid with a Catalan spokesperson provocatively telling the press that Catalonia will not even say ‘thank you’ to the Spanish government. The reason being, that the region believes that the needed cash already belongs to Catalan taxpayers which they feel has been confiscated in order to pay for bailouts to the rest of Spain. Even more controversially the region has said that it will reject any ‘political conditions’ and has no intention to make further austerity cuts to meet the deficit target set by the central government.
Catalonia’s defiance is a troubling sign for Prime Minister Mariano Rajoys government. The fiercely independent autonomous regions could theoretically ruin his austerity programme and prove a death knell to the nation’s austerity hopes and divide the nation at a time where it cannot afford to be. If Rajoy’s government shows any weakness when dealing with the regions then it could prove to be the beginning of the end for him and a perhaps a unified Spain. Each of the individual regions will ignore Madrid and continue spending what they see fit a position that the European community won’t tolerate after lending Spain so much money.
Rajoy needs to take firm action against the regions if he wants to maintain his negotiating position with the wider world. If it appears that he is losing control then he and his government could overruled by the regions and Europe’s protests would fall on deaf ears. If this occurs then Eurozone leaders will become increasingly reluctant to assist and take his fiscal reforms seriously.
Economy Minister Luis de Guindos said that struggling banks are unlikely to tap all of the rescue money, which he expects will become available in early November once banks release their restructuring plans due this month.
“In principle, it looks like not all of €100bn will be used,” he told local radio station Onda Cero.
In an apparent bid to appease investor confidence, he insisted that no further austerity measures would be needed to plug the country’s deficit. The government in July announced tax increases and spending cuts totalling 65bn Euros.
“Spain has already set out a path which is sufficient for the problems we face,” he said, adding that Spain was on course to slash its budget deficit to 6.3% of GDP this year from 9% last year.
This latest development is sure to be of great interest to German Chancellor Angela Merkel who is due to visit Madrid on Thursday to discuss Spain’s progress in its austerity plan.